Recent amendments to Taiwan’s Certified Public Accountants Law
will make the practice environment healthier, enhance the quality
of CPA services and strengthen the accounting profession’s
self-regulation. PricewaterhouseCoopers Taiwan senior manager of
markets and strategies Damian Gilhawley explains.

Last December, the Taiwanese government legislature passed
long-delayed amendments to the nation’s Certified Public
Accountants (CPA) Law. The revised legislation marks a new
milestone for Taiwan’s accounting profession as it will bring about
several changes that may kick start a consolidation trend in the

Many sections of Taiwan’s CPA law had not been amended for 30
years, so several provisions were out of date and at variance with
international trends. To address concerns that the outdated law
might affect the development of the accounting profession, the
Financial Supervisory Commission (FSC), Taiwan’s financial
watchdog, proposed comprehensive amendments in 2005, which were
eventually passed and promulgated in December 2007.

The key changes are the diversification of organisational types and
the clarification of CPA firm liability.

Structural reform

The revised CPA law includes a new article that allows for an
accounting corporation to be recognised as a legal person, which
should consist of more than three registered CPAs, and only the
shareholders of the corporation are allowed to practice business on
its behalf. Currently, the Big Four and mid-tier firms are
organised as partnerships only.

In addition, to solve the uncertain status of joint accounting
firms and clarify who actually bears liability at such firms, the
revised law allows joint accounting firms to become organised as
partnerships, and has added a new category of firm called
‘cosignatory CPA firms’ to stay in line with the actual state of
practice in the field of accounting.

The revised law requires CPA firms organised as legal persons to
take out practice liability insurance, while such insurance remains
optional for individual and joint CPA firms. The FSC has the power
to suspend all or part of an accounting corporation’s business for
up to six months or revoke the corporation’s license if its
practice insurance does not meet the minimum requirements.

In terms of compensation for damages due to CPA negligence in cases
other than attestation work for a public company, the limit shall
be ten times the total amount of fees received from the same
designated person, appointed person or person under investigation
in the year in question.

The revised law imposes heavier penalties upon those who provide
CPA services without obtaining a CPA certificate and those who lend
out their certificates for use by unlicensed parties. Violators
could be sentenced to five years in prison and/or be fined between
TWD600,000 ($19,449) and TWD3 million. This change has been adopted
to enhance the social image of CPAs.

The revised law maintains an accountant’s right to refuse to
endorse a client’s financial reports if the latter is known to have
concealed or refused to provide the necessary financial
information. The law now makes it compulsory for CPAs to report to
the client’s board of directors or supervisors as well as to the
FSC for financial statements of listed companies that they refuse
to verify, noting that such statements are usually extraordinary in
nature or irregular and could have much bearing on the investing
public’s interests.

Strengthened oversight

In addition, a provision was added stating that the FSC enjoys the
authority to examine documents audited by an accountant if the
commission has doubts regarding the finances of any person or any
company endorsed by the accountant. Likewise, the amendment also
empowers the FSC to send officials to examine any accounting firms’
business or their financial situation.

Corporate governance and financial transparency are important
issues in Taiwan and the revised CPA law aims to ensure that
auditors play their role in preventing fraud following earlier
corporate scandals, such as the collapse of hardware manufacturer
Procomp Informatics in 2005.

To ‘promote quality of service’, the revised law requires CPAs to
engage in continuous professional development and training as
regulated by the National Federation of CPA Associations (NFCPAA).
The FSC can suspend business operations at firms that fail to
observe the professional training requirement and those who are
unable to meet the regulation within one year following the
suspension may have their certificates revoked.

The law includes measures to enhance the fairness of disciplinary
sanctions for CPAs. Revisions have been made regarding what
constitutes negligence on the part of CPAs when auditing and
certifying financial reports. It is now expressly provided that
representatives from industry, government and academia should each
account for one-third of the CPA Discipline Committee.

Removing duplication

While maintaining the current organisation of Taiwan’s various CPA
associations, the revised law requires the integration of many of
the functional committees that are now duplicated under the Taiwan
Provincial CPA Association, the Taipei City CPA Association and the
Kaohsiung City CPA Association, as well as the NFCPAA. Committees
in charge of matters that are national in scope will now be unified
under the NFCPAA.

In addition, the NFCPAA will also set up a new professional
liability assessment committee. This functional division of labour
and mutual support among the regional associations and NFCPAA will
enable them to operate more efficiently and fulfil their
self-regulatory function more effectively.

Furthermore, the revised law gives CPA associations the freedom to
decide service charges but stipulates that when deciding the
charges they should take into consideration the labour, time and
risk involved.

Overall, the revised CPA law is expected to encourage a change in
the profession’s structure, whereby a greater number of smaller
firms are likely to be subsumed by larger groups. That’s because
the bigger accounting firms can handle the higher liability risk.
Big Four firms audit more than 80 percent of Taiwan’s publicly
listed companies, according to NFCPAA, and the remaining companies
are clients of medium-sized firms. Sole proprietor practices
provide accountancy services for the estimated 1 million SMEs in
Taiwan. By comparison, there are fewer than 3,000 publicly listed
companies in Taiwan. Consolidation beckons.

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